The assessed value and the market value of a home are often very different leading to confusion amongst homeowners. They are viewed as something that should be similar but in reality, they are very different from each other. Usually, the assessed value of a home is much lower than the market value and that is for several reasons discussed below.

What is market value?

The market value of a home is the amount of money the home would generate if it were sold at listing price in an open market. This is the number that real estate agents and appraisers try to determine in an effort to figure out what a home is actually worth.

A good real estate agent will try to be as accurate as possible when determining this number because it’s one of the most important parts of their job. Agents may have a slightly different approach when determining the market value of your home but they will look at the following attributes:

Exterior: In addition to curb appeal, agents will look at the lot size, house style, exterior conditions, etc. Sometimes they will offer home improvement advice to make it easier to sell your home.

Interior: In addition the exterior features listed above, the interior features of a home are also important. Things like the square footage of the home, how many rooms it has, heating systems, energy efficiency, and appliance conditions are all taken into consideration when calculating the market value.

Similar Homes: An agent will research houses that are similar to the home in question. These similar homes are also known as comparables or comps for short. Comparable homes give agents and appraisers an idea of what buyers are likely to pay for a specific property and therefore help in determining the market value.

Supply and Demand: If there are more buyers than sellers, then supply will be low and it will lead to a seller’s market. That means higher prices for homes can often be charged. On the flipside, if there are more sellers than buyers, then supply will be high and that will lead to a buyers market. This means that buyers can get away with offering less than asking price or be more aggressive in their negotiations.

Location, location, location: As the old saying goes, location is important and an agent will evaluate the neighborhood, school districts, crime rates, walk score, and other factors that may affect a homes price.

What is assessed value?

Assessed values are relatively similar to market value, except they are not calculated by a real estate agent and are used for different purposes other than selling the home.

Most local governments employ property assessors whose sole job is to determine how much a property is worth to help in calculating property taxes a homeowner will need to pay.

This number is reached by utilizing comps (similar properties) as a starting point. From there an assessor will look at recent improvements, rental income, or how much it would cost to replace a home if a natural disaster were to destroy it.

Assessed value and property tax bills

When an assessor has finished their assessment, they multiply the assessed value by the assessment rate. Various tax jurisdictions have their own assessment rate so it’s best to look at your county’s property assessors office website to figure out exactly what that number is.

If an assessor determines a home is worth $400,000, and the county a homeowner lives in has a tax rate of 80%, then the taxable value of that home is $320,000.

Disputing assessed value

Homeowners sometimes dispute their property tax bill by claiming that an assessed value is too low or too high. Essentially, they are requesting that the property assessors office review their property value in hopes that they are going to achieve the goal of lowering their property tax bill. 

Either an attorney that specializes in this form of legal dispute can be hired or a homeowner can simply go to the property assessors office and file an “application for tax abatement”. 

Every state has various rules to comply with when disputing the assessed value of a property, so again, it’s best to check with your county’s assessor’s office.